European styrene prices rebounded to trade at a $160/t premium above benzene this week - up by $30/t from its 2014 low of $135/t at the beginning of April on fresh demand from ethylbenzene and styrene monomer (SM) producers to purchase styrene for April and May delivery, rather than buy benzene for conversion into ethylbenzene.
Styrene produced from ethylbenzene is the most important outlet for benzene in Europe with styrene demand accounting for up to 50pc of western Europe’s 7.7mn t/yr benzene consumption and 7pc of the 18mn t/yr ethylene market.
Spot prices of styrene loading from the Amsterdam-Rotterdam-Antwerp (ARA) storage hub in April have risen by $65/t over the last month from $1,580/t at the beginning of March to $1,645/t today.
Despite the pick-up in the styrene/benzene differential this week, the spread has been trading at historically low levels that remain increasingly uneconomic for non-integrated ethylbenzene producers.
The styrene/benzene spread fell to its lowest point of the year of $135/t at the beginning of April after hitting a record high premium in September 2013 of $650/t.
This year’s record high benzene prices in Europe have been forcing European styrene producers to dramatically cut back ethylbenzene production since the beginning of the year, with low styrene stocks leaving European styrene prices at their most expensive on a global basis.
Styrene demand is seasonally strong, but in spite of cutbacks on ethylbenzene/SM units the shortfall in supply is falling as propylene oxide styrene monomer (POSM) plants - which account for 40pc of Europe’s styrene production capacity - continue to run strongly to meet propylene oxide demand for polyols.
Global demand for methylene diphenyl diisocyanate (MDI) based polyurethanes is also growing at an estimated 8pc/yr, which is driving demand for aniline and propylene oxide in Europe.
On the production side this quarter in Europe, there is upcoming second-quarter maintenance scheduled at the Ellba 550,000 t/yr POSM facility in Moerdijk in the Netherlands in May and/or June.
Shell’s Moerdijk facility has been running at high rates ahead of this planned shutdown because of a need to build stocks of PO & polyols, as well as SM.
Ellba is a 50:50 joint venture between Shell and the world’s largest chemicals group – Germany’s BASF - for the production of styrene via POSM.
Moerdijk is also home to Shell Chemical’s 460,000 t/yr styrene plant, which produces styrene via the POSM process.
The largest derivative consumer of styrene monomer in Europe is the polystyrene (PS) industry, which accounts for just under 64pc of European consumption.
The European PS industry has undergone major changes in recent years, as rising feedstock prices have cut into polymer producers’ margins and forced increases in polymer prices.
The current European monthly contract price (MCP) for general purpose PS is €1,985/t ($2,743/t) - 25pc higher than the last price peak just before the 2008 recession when the MCP stood at €1,590/t.
This has led to decreasing end-user demand. Many applications have switched to using lower cost thermoplastics such as polypropylene and polyethylene terephthalate (PET) with the costs also proving a barrier to new applications. Additionally, some applications such as CD cases have declined dramatically in a short space of time.
As a result there has been rationalisation in the industry with significant capacity closure. Large new European players have been formed as a result of divestment by integrated players. Styron has been formed from the divestment of US Dow chemicals’ styrenics business while Styrolution has been formed as a 50:50 joint venture, combining the styrenics assets of Switzerland-based petrochemical firm Ineos and BASF.
Non-integrated margins for PS producers have improved somewhat in Europe as a result of this rationalisation. But the need for PS to be as cost-effective as possible in relation to competitor polymers obliges producers to keep a watch on the price differential between PS and polypropylene. When styrene prices are high and demand is not strong, PS prices follow the feedstock costs quite closely.
After weak demand in January and February, exacerbated by rising prices, the fall in feedstock costs in March brought buyers back to the market and allowed producers to recover some margins. Expandable polystyrene (EPS) demand has been relatively strong with the unusually mild winter allowing the construction industry to largely avoid its traditional seasonal decline.
Public holidays in April and May are expected to reduce total demand over the two months, as many converters will shut down over the long Easter weekend before closing again for another four days of May public holidays. Producers are beginning to recover margins following the SM increase in April and the outlook is increasingly bullish moving forward as seasonal demand picks up in the construction and disposable packaging industries.
Styrene-butadiene (SB) and styrene-butadiene-rubber (SBR) latexes, together with acrylonitrile-butadiene-styrene (ABS) are also major consumers of styrene in Europe. Growing European demand for SB adhesives compensates for the decline in use of SB latex in paper coating, which is being restricted by high styrene and butadiene costs.
SBR in its elastomer form is used in tyre production and ABS is widely used for the manufacture of automotive trim components as well as in household and consumer goods. Both are set to benefit from the cautious recovery of the European automotive market, with at least one major European tyre producer forecasting an increase in units produced in 2014.
But advantageous feedstock costs over March and April and weak Asian market demand have opened an arbitrage for SBR from Asia to Europe in the range of $350-400/t, more than enough to cover the freight costs between the continents and creating concerns for European SBR producers.
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